Now even the most sanguine analysts are admitting that the financial woes emanating from the United States have snowballed to a full-scale economic turmoil across the globe.
However, Asian economies, especially those of the Association of Southeast Asian Nations (ASEAN), are withstanding the crisis fairly better than many others, say, their counterparts in Europe, where six more banks collapsed last week and several other banks are in a precarious situation.
The less stronger blow hitting ASEAN economies this time is largely attributed to their healthy foreign reserves and fiscal balances and the fact that their banks had little significant exposure to foreign toxic assets that had dragged down a number of banking giants in the United States and Europe.
Clearly, the ASEAN nations have learned a lesson over the years after the devastating 1997 Asian Financial Crisis, and the caution borne of the disaster is paying off now.
Economically, the financial crisis a decade ago has helped the ASEAN become a more insulated and more integrated regional economy.
The crisis itself highlighted ASEAN economies' vulnerabilities and how some of these had been exacerbated by the hothouse growth of the early 1990s. At the top of the list were large current account deficits and overvalued and overmanaged exchange rates practically pegged to the U.S. dollar. The domestic reflection of this was very high levels of foreign and local investment often funded by questionable bank loans.
Today the regional picture is quite different. It is a much more defensive one focused on moderating external vulnerabilities even at the cost of slower growth.
ASEAN economies today have abandoned the approach of freely floating exchange rates, current account deficits and minimal foreign exchange reserves, but rather continued foreign exchange management with greater foreign exchange reserves and current account surpluses. The strong current account surpluses that most ASEAN economies run now are also being translated into growing pools of foreign exchange reserves.
"The ASEAN today is lean and fit, in part reflective of the significant reforms undertaken over the decade since the 1997 financial crisis," said a statement issued by the ASEAN Finance Ministers, who met in Dubai a week ago.
The statement went on to explain that "ASEAN Member States have strengthened fiscal sustainability, deepened capital markets, enhanced financial regulation and supervisory frameworks, reduced debt exposure and improved their reserve positions." It fared well in boosting investors' confidence in a highly volatile period in the stock markets.
Though ASEAN's economic fundamentals remain sound, the diverse, trade-dependent region is by no means immune from the global financial shocks.
Trade, among other crisis-driven pressures, is an area of great exposure to the global downturn. A dismal report on the U.S. job market raised the concerns about weakening U.S. consumer demand for Asian exports. As many ASEAN economies have a large export sector, their economic growth is expected to be slowing down this year.
Finance ministers of the ASEAN member states and the three East Asian nations -- South Korea, China and Japan -- agreed in Spain in May to set up a fund to help provide emergency liquidity to financially-troubled nations from next year, an effort in part to prevent a recurrence of the 1997 Asian financial crisis.
It is high time to press ahead with such regional integration and cooperation initiative to protect ASEAN economies from the fallout of the global financial crisis. Act expeditiously and delay no more.
Source: Xinhua
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